Purchasing a piece of commercial real estate today is far different than trying to purchase a home. The number of properties in the commercial world is much more limited, the priorities tend to change, and the amount of renovations that need done are usually much more extensive than changing the carpet or painting the walls.
That is just part of the reason why it is so important for buyers and sellers to seek professional help before entering the commercial real estate market.
“Too many people buy things thinking they don’t need somebody to help them,” says Ron Sparks, president of Colliers Arnold’s Valuation Company. “And then they often don’t make the best decision.”
Smart Business spoke with Sparks about what to look for when appraising, buying or selling a piece of commercial real estate.
How do you estimate the value of commercial real estate?
In today’s market, a lot of segments are appreciating faster than others. Working with a good broker is critical. Make sure you get a broker that represents you and not someone who is just representing the transaction. Make sure they’re looking out for your best interest.
How do you find a good broker?
A lot of people, when they’re buying their first small office or commercial property, make a mistake because they might know a residential broker or two. Some buyers start there, and that’s usually not the best decision.
People who specialize in residential should stay in residential, just like people in commercial, generally speaking, shouldn’t try to sell houses.
Try and get someone who specializes in the product you’re looking for. If you’re looking for an office building, find a broker that specializes in the office market, not one that sells houses or retail properties.
Why is it important to seek help when looking to buy or sell?
The first thing is you want to make sure you don’t pay too much for the property. You want to get something that suits your business today and something that takes into consideration your growth, whether that’s over the next three years or it’s the next seven to 10 years. Just make sure you’ve considered what you need today and what you’re going to need in the future.
What is the most important key when purchasing commercial real estate?
Real estate has always been about location, and I think that’s still the primary driver for someone looking to buy a building. Make sure it’s in a good location, not just for your needs today but for your needs in the future. For some businesses, especially with what the price of gas is now, you don’t want your employees driving any farther than they have to.
What’s the difference when you’re shopping for commercial property and when you’re shopping for residential?
In general terms, you’re going to have a larger market area and you’re going to have fewer options. In any geographic area, there are hundreds if not thousands of houses, with maybe 10 percent of those on the market at any one time. You’ll have dozens of properties to consider.
For a commercial property, especially in the last three to five years, there aren’t that many options. Someone who is looking in a submarket for a particular property of a particular size may very likely have only two or three options. So it’s trying to help them figure out if those are viable options, or if they need to either expand the search area or change the criteria they’re looking for, or simply choose to wait.
In today’s market, it’s much more difficult to find that property to buy commercially than it is residentially.
What is the most important issue buyers and sellers must realize?
For buyers, make sure the property works for you, or make sure it has the potential to work for you. If you buy something and it’s going to take extensive renovations to work for you, that’s fine just understand that, and understand how long it takes to implement those changes, and how much it’s going to cost.
When you work with sellers, you just have to educate them on the other side of the deal. When a buyer looks at the property, he or she is going to need to make some changes and renovations, and that has to be reflected in the price.
RON SPARKS is president of the Valuation Company at Colliers Arnold. Reach him at (813) 221-2290.